Executive Summary

The Mayor of Los Angeles has requested that UC Berkeley’s Institute for Research on Labor and Employment conduct an impact study of his proposal to establish a city-wide minimum wage of $13.25 an hour by 2017, phased in over three steps. This report therefore examines the effects of the minimum wage policy on Los Angeles workers, businesses and the overall economy. Drawing on a variety of government data sources, we find the following:

About 567,000 workers – or 37 percent of workers covered by the policy – would receive a pay raise under the proposed law by 2017.

Workers’hourly wages and annual incomes would rise, resulting in a total increase in aggregate earnings of $1.8 billion (in 2014 dollars) by 2017.

Hourly wages of affected workers would rise by an average of $1.89 per hour.

Average annual earnings would increase by 21 percent, or about $3,200 per year.

Adults, workers of color, and working poor families would see significant benefits from the proposed policy.

97 percent of affected workers are in their twenties or older, and 59 percent of the workers receiving raises are in their thirties or older.

The average worker who would benefit from the law contributes 51 percent of his or her family’s income.

Workers of color (black, Hispanic, Asian and other) will disproportionately benefit from the law, representing about 83 percent of affected workers.

The affected workers have a wide range of educational backgrounds—46 percent have at least some college and 14 percent have a bachelor’s degree or higher.

Over 80 percent of Los Angeles workers who are in low-income families will receive an increase in income from the proposed law.

The current median annual earnings of affected workers is about $16,000, or 44 percent of the median annual earnings in Los Angeles ($36,000).

Previous economic research on federal, state and local minimum wage increases has found little to no measurable effect on employment or hours from minimum wage policies.

Instead, research evidence indicates that the costs of minimum wage increases are absorbed through reduced worker turnover, improved worker performance and small one-time increases in restaurant prices. Increased costs may also be offset by the additional spending by low-wage workers and their families, acting as an economic stimulus in local economies.

The proposed minimum wage law would have a modest impact on business operating costs and consumer prices.

Operating costs would increase by 0.6 percent for retailers, by 4.7 percent for restaurants, and by 0.4 percent in the manufacturing sector by the time the proposed law is fully implemented in 2017.

Restaurant prices would increase by 4.1 percent by the time the law is fully implemented. A $10 meal would increase by 41 cents, to a total of $10.41. For retail and the local economy as a whole, price increases would be negligible.

We cannot rule out the possibility that the restaurant industry might experience small reductions in growth (about 560 fewer jobs a year) over the three year phase-in of the proposed law, and that some apparel manufacturing jobs might relocate outside the city.

The percentage increase in the proposed minimum wage policy is above the average of existing local minimum wage laws, but within their range.

The proposal would raise Los Angeles’ minimum wage by 47.2 percent over 3 years in nominal dollars (adjusted for inflation, the percentage increase is 36.7 percent). The 14 existing local minimum wage laws in the U.S. have mandated an average total increase of 41.3 percent, with a range of 13.3 percent to 84.5 percent.

The proposed policy would increase the minimum wage to 59 percent of the Los Angeles median wage for full-time workers. This ratio is similar to the ratio for Seattle, and somewhat above the 55 percent historical peak for the ratio of the federal minimum wage to the national median wage.

In sum, the proposed policy would provide significant gains in income to Los Angeles’ low-wage workers and their families. Most businesses would be able to absorb the increased costs, and consumers would see a small one-time increase in restaurant prices. The policy’s impact on overall employment is not likely to be significant.

BERKELEY—A new report released by researchers from the University of California, Berkeley’s Institute for Research on Labor and Employment finds that the minimum wage policy proposed by Los Angeles Mayor Eric Garcetti would provide significant gains in income to Los Angeles’ low-wage workers and their families.

The Mayor’s proposed policy would increase the city’s minimum wage to $13.25 an hour by 2017 phased in over three steps, with annual cost-of-living increases thereafter.

The study, by the UC Berkeley Researchers Michael Reich, Ken Jacobs, Annette Bernhardt and Ian Perry finds that about 567,000 workers, or approximately 37 percent of the workers covered by the ordinance, would receive a raise under the proposed law. Pay for those workers would rise by an average of $3,200 per year, for a total increase in aggregate earnings of $1.8 billion (in 2014 dollars) by 2017.

These pay increases would especially benefit adults, workers of color and working poor families. Researchers estimated that 97 percent of the workers are in their twenties or older and 59 percent in their thirties or older. The average worker benefiting from the policy contributes slightly more than half of his or her family’s income. Workers of color (Black, Hispanic, Asian and other) make up 83 percent of the affected workers. Over 80% of Los Angeles workers in low-income families would receive an increase in income under the policy.

Previous economic research on federal, state and local minimum wage increases found little to no measurable effect on employment or hours worked. The costs of the minimum-wage law were absorbed through increased worker productivity, decreased turnover, and small, one-time increases in restaurant prices. Projections for the proposed law suggest that prices in restaurants would increase by 4.1 percent by 2017. Increased costs may also be offset by the additional spending by low-wage workers and their families, acting as an economic stimulus in local economies.

The proposal would raise Los Angeles’ minimum wage by 47.2 percent over three years. This is above the average of existing local minimum wage laws, but within their range.

“A citywide minimum wage can help make the economy more equitable without harming economic growth,” said Michael Reich, a UC Berkeley professor and director of the institute that produced the study. “Most businesses will be able to absorb the increased costs, while consumers will likely see a small one-time increase in restaurant prices.”

To date, 14 cities and counties have approved local minimum wage laws including Seattle, San Francisco, San Diego and San Jose. Oakland will vote on a $12.25 minimum wage in November and San Francisco will vote on a $15 minimum wage.

The research was carried out at the request of the Los Angeles Mayor’s office.